He Silver Company uses a predetermined overhead rate in applying overhead to production orders on a labor cost basis in Department A and on a machine hours basis in Department B. At the beginning of the year, the company made the following estimate

Dept. A Dept. B

Direct labor cost $ 63,000 $ 40,000

Manufacturing overhead $ 80,010 $ 68,450

Direct labor-hours 8,700 9,700

Machine-hours 4,700 18,500

What predetermined overhead rate would be used in Department A and Department B, respectively?

127% and $3.70

79% and $4.12

79% and $3.70

79% and $7.0

The correct answer is A.

Explanation:

Giving the following information:

Dept. A Dept. B

Direct labor cost $ 63,000 $ 40,000

Manufacturing overhead $ 80,010 $ 68,450

Machine-hours 4,700 18,500

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Departement A:

Estimated manufacturing overhead rate = 80,100/63,000 = $1.127 per direct labor cost

In % terms = 127% of direct labor cost.

Department B:

Estimated manufacturing overhead rate = 68,450/18,500 = $3.7 per machine hours